High-end residential units and luxury villas are expected to be the first targets of tax reform that the central government will launch soon.

The move would further sour sentiment in the upmarket housing sector, where demand had fallen since the September tightening of mortgage lending to buyers of second homes, property agents said.

Beijing is expected to introduce a property tax, likely to be an annual levy based on the size of residential units. It has not yet announced what the tax rate will be or how it will be implemented.

In Hong Kong, homeowners are charged a percentage of the rateable value - the estimated annual rental value of a property, assuming that it is vacant and for lease. The rate is 5 per cent.

Jia Kang, chief of the finance ministry's Finance and Science Research Institute, said the new tax should be first imposed on high-end homes or luxury villas, as that market was smaller than the mass housing segment.

The tax is the latest measure to regulate rising property prices, which have accelerated in recent months. The latest data reveal prices in 70 major cities rose 9.5 per cent year on year last month, up from an 8.9 per cent growth in September.

Andy Lee, a general manager at Centaline (China) in Shenzhen, said a tax on property values would further depress demand in the upmarket housing sector, which had already seen a slowdown.

The central bank and the China Banking Regulatory Commission announced a mortgage policy on September 27 requiring buyers of a second home to make a 40 per cent down payment, an increase from 30 per cent, and pay a higher interest rate than first-time buyers.

'Home prices in October fell 10 per cent from September, while the number of transactions fell to below 4,000 last month from more than 10,000 in June,' he said.

He hoped the launch of the new tax, widely expected to be in January next year, would be delayed,

Fuli Cao, a partner in tax practice at Jones Day's Beijing office, said property taxes or their equivalent already existed but did not apply to property used by individual owners for non-business purposes.

'It is likely the new property tax will apply to individual owners,' Mr Cao said. 'As it is related to various policies, the government will be cautious with property tax reform.'